Incessant pressures to cut costs and reduce capital outlay have triggered the near- and offshore movements in the US customer relationship outsourcing industry. The success of several high-profile and high-value offshore contracts in financial services has caused enterprises worldwide to focus their strategic CRM visions on foreign markets.

In India alone, large contracts with Indian outsourcers have saved companies like American Express, Citibank, and Merrill Lynch tens of millions of dollars. Generating similar interest in the UK, the Indian CRM outsourcing market has recently welcomed firms like HSBC, BT, and Prudential, as well.

Low labor costs prompt near- and offshore growth

Labor accounts for the majority of outsourcers’ overhead costs – nearly 66% of call center costs, Datamonitor estimates. The lure of lower labor costs (often between 15-25% of those in the US), low agent turnover rates (as much as 10 times lower than in the US), and access to higher educated English- and Spanish-speaking labor pools have led outsourcers to expand call center operations outside the US. Outsourcers have set up operations in popular near- and offshore countries such as India, the Philippines, Canada and Mexico, to name a few.

This has slowed growth in the domestic US outsourcing market, resulting in a mere 1.9% growth in US outsourced agent positions in 2002, which totaled 320,000 (11% of all US agent positions). Datamonitor expects this to climb a modest 40,000 to reach 360,000 in 2008 (12% of all US agent positions), when the total value for the US customer relationship outsourcing market will be worth almost $24 billion compared to the current $19 billion.

Currently, 1 out of every 24 US-based agent positions is outsourced to a near- or offshore bureau. By 2008, 1 in 15 agent positions will be outsourced to a foreign market. Datamonitor estimates that by year-end 2003, 121,000 agent positions will be staffed by near- or offshore outsourcers. This number will climb to 201,000 by 2008.

Having call centers in near- and offshore locales enables outsourcers to leverage labor arbitrage, multi-lingual and highly skilled labor to service the US market at lower costs while maintaining quality. Although there are geopolitical uncertainties and quality concerns over labor and management, US outsourcers are determining that the benefits outweigh the risks.

Emerging sectors offer growth for US market

Although the US call centers will lose jobs to foreign markets, new US-based agent positions in emerging sectors, namely utilities and government, will safeguard against shrinkage of the domestic market.

Currently the vertical market segmentation of outsourced agent positions in the US market is heavily concentrated in three vertical markets – communications, financial services and technology – which account for 33.4%, 19.8% and 13.8%, respectively, of outsourced agent positions. Collectively, these verticals account for over 65% of the total number of outsourced agent positions in the US.

The continued deregulation in US utilities will spur growth in outsourced customer care, as the need for differentiation leads utilities players to focus on customer service provision to effectively compete in the commoditized market. The government vertical market will be catalyzed by agencies’ cost reduction efforts coupled with favorable outsourcing legislation, such as the FAIR Act and OMB Circular A-76, which paves the way for the outsourcing of certain US government functions.

Success in the US customer relationship outsourcing market will come from outsourcers leveraging near- and offshore call center operations and executing the right vertical-specific sales strategy as it relates to the utilities and government vertical markets.